Is the UK automotive industry on the road to revival?

This week saw a big moment for UK manufacturing, one that probably should have received more attention than it has. According to March trade figures released by the Office for National Statistics (ONS), Britain now makes more money from exporting cars than it spends on importing them for the first time since 1976.

In recent months we’ve seen Honda and Nissan also announce the creation of hundreds of jobs at their UK plants while Jaguar Land Rover has pledged to invest a further £1bn with British suppliers over the next four years.

‘It’s not an uncertain anymore: there is a renaissance in UK automotive manufacturing,’ says Paul Everitt, chief executive of the Society of Motor Manufacturers and Traders (SMMT).

‘Over the course of the last 18 months we’ve seen around £4.5bn of investment committed to the UK. Almost every single one of the major vehicle manufacturers operating here has committed and recommitted to their facilities. And so we have a forward view of almost a decade of product into UK plants, which is in memory unheard of.’

Driving change

With production rates of around 1.4 million vehicles a year, we might still be far off our 1970s peak of more than two million, or even the late 1990s when we returned to almost as high a level. But there’s been a 40 per cent increase since the 2009 recession despite the country’s continuing economic struggles and those of our main export market, the eurozone.

So what’s behind this revival? The first thing most people mention is the continued strength of the UK engineering base. Despite the decline of manufacturing we still have the strong capabilities, innovation and skills of a developed industry, not to mention a large domestic market. But this in itself doesn’t explain the change.

Everitt argues that UK-based car companies have worked hard to improve their businesses, a point echoed by analyst Dr Daniel Guttmann, head of the automotive team at PWC. ‘Ellesmere Port is one of the most efficient production sites in Europe, so it would have been a very strange decision to close that site down,’ he says. ‘British engineering and ingenuity has gone a long way to making these plants more efficient.’

It’s a far cry from the image of British car making in the 1970s, which the industry now seems to have shed, along with the problems of worker relations. Vauxhall said a new flexible working agreement had helped Ellesmere to reduce costs and was a key part of the company’s decision, but was also welcomed by the union Unite.

‘While we would argue the relationship with the trade unions and employees has been very good for a long time, these perceptions are sometimes difficult to overcome and I think we have unquestionably changed that,’ says Everitt.

Rebound from recession

Part of the growth in the last few years has of course been the rebound from recession, aided by a good exchange rate after years of a strong pound. But political changes have played their part as well as economic ones.

‘The government has now very publicly and proactively stated its aim to grow the manufacturing sector to rebalance the economy,’ says Vauxhall’s managing director, Duncan Aldred, arguing that the government’s determination to stick to austerity at least creates consistency for investment. ‘We know the economy isn’t growing anywhere near what we want it to be but at least we have a path forward. Like it or not, there is a plan and I think that helps create stability.’

The regional growth fund, increased R&D tax credits and the willingness of ministers and even the prime minister to lobby for the UK’s automotive industry — business secretary Vince Cable flew to the US to meet with the boss of Vauxhall owners General Motors before the deal was signed — have all played their role.

And to be fair to Labour, it was the previous government and former business secretary Lord Mandelson who began the process, argues Everitt. ‘He established the Automotive Council, he worked with industry on establishing a strategy around the transition to low-carbon vehicles, strengthening the supply chain, improving communication.’

Maintaining momentum

But now that we’re seeing strong growth, the question is whether it’s sustainable. Will it last beyond the crisis in the eurozone, in a European industry that is already recognised as having an overcapacity, in the face of — as the chief executive of Ford Europe, Stephen Odell, recently pointed out — growing competition from Asian manufacturers in the wake of free-trade deals?

‘It’s a good question and there’s actually no simple answer,’ says Guttmann. ‘The overcapacity is much more acute for some manufacturers than others. And I would think the more vulnerable manufacturers are not in the UK and therefore I would expect the UK’s share of manufacturing in Europe to go up.’

Another reason to be positive about the future for the UK is the appeal of classic British brands in the upper market segment — Jaguar, Land Rover, Bentley, Aston Martin. These are seen to have particular appeal in rapidly developing countries such as China and India among a growing middle class gaining a taste for luxury. So Asia provides an opportunity as well as a threat.

Sadly, the mass-market cars built by Honda, Ford or even Vauxhall (badged as Opel abroad) don’t have the same British stamp, even if the UK industry has overcome its image problem. And there is an urgent need to nurture the supply chain after years of decline and the ravages of recession, something that will be difficult without more economic stability.

But the manufacturers’ commitments to Britain’s automotive plants have already secured some future prospects and, with continued innovation, efficiency and the right environment for investment, this could mark a major turning point in our industrial history.

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Yet another great British industry that we allowed to wither, then sold to foreign owners who have since made a great rebirth of it! All the successful British marques are owned by GM (Vauxhall), Ford, Tata (Jagual/Land Rover), Nissan, BMW (Mini)!

Just the same with our steel industry (now Tata and Thai STeel), all the ex-ICI companies they dumped because they said they could make no money – the list is endless!

Yet again proving that UK company owners cannot get their investment strategies to work, but overseas owners (many of them family firms!) with longer time horizons can exploit the strong UK skills base to make a great success of manufacturing here.

Don’t forget the two-wheeled industry – Triumph, revived with modern manufacturing and mangement methods are now a world-class operation and a top marque in their field.

Longer time horizons and a lack of indebtedness to a “City” populated by quick-buck wide-boys with no comprehension of “the grubby business of making stuff” would enable any operation to make the correct decisions for growth.

Demand for cars – particularly in China, Russia and Brazil – is increasing at a far greater pace than the local demand in the UK. In general, demand for premium cars is very high. Secondly, UK brands now have world class products, which can compete well globally. These two factors have seen exports outstripping imports.

There have always been foreign owners (Ford – JLR, GM – Vauxhall, BMW -Rover) but this has not affected the sales either way. Ownership is secondary. These are British designed cars carrying British brands.